Pensions: Tax Relief

Debate between Baroness Bakewell of Hardington Mandeville and Lord Young of Cookham

Tuesday 6th December 2016 Lords Chamber

[Lord Young of Cookham]

I am grateful to my noble friend for endorsing the decision I announced at the beginning of this exchange that, in view of the absence of a consensus for an alternative, we wanted to stay with the regime that we have at the moment, which as my noble friend has said, has many advantages.

[Baroness Bakewell of Hardington Mandeville (LD)]

My Lords—

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[Baroness Bakewell of Hardington Mandeville]

My Lords, the current system benefits the wealthiest in our society. However, if tax relief were changed to match funding with thresholds aimed at lower savers and, for example, the first £500 was matched by the Government pound for pound, thereafter gradually tapering down, this would demonstrate the benefits of savings as it supports those on lower incomes getting the most. Does the Minister agree that reform to match funding, rather than tax relief, would give a greater incentive to save?

[Lord Young of Cookham]

I give the noble Baroness the same response that I gave to her noble friend at the beginning of this exchange. We looked at alternatives to the current regime a year ago and because there was no consensus we decided to stay where we are. In view of the complexities of rolling out auto-enrolment, we decided that this was not the right time for fundamental reform.

Pension Schemes Bill [HL]

Debate between Baroness Bakewell of Hardington Mandeville and Lord Young of Cookham

Committee: 2nd sitting (Hansard): House of Lords
Monday 28th November 2016 Lords Chamber

[Lord Young of Cookham]

My Lords, it is quite right that we debate whether this clause should stand part of the Bill, because it is an important one. I hope to persuade noble Lords who have spoken that the powers we are taking are proportionate and indeed necessary in order to deliver the commitments that the Government have made to beneficiaries of pension schemes. As the noble Lord, Lord McKenzie, said, we are seeking here to bring occupational pensions into line with the regime that already exists for other pensions.

In a nutshell, the clause amends existing legislation in Schedule 18 to the Pensions Act 2014 to allow regulations to be made that enable a term of a relevant contract to be overridden to the extent that it conflicts with a provision in those regulations. I emphasise that the power would allow a contract to be overridden only where there is a conflict with a provision in regulations. This ensures that relevant contracts are consistent with the regulations, and provides certainty to the parties involved. It may be helpful if I clarify that Clause 40 is distinct from the previous clauses in this Bill that referred to charges; those clauses all relate to the proposed master trust authorisation regime.

We intend to use Clause 40, alongside existing powers in the Pensions Act 2014, to make regulations to cap or ban early exit charges. Early exit charges are any administration charges that are paid by a member for leaving their pension scheme early when they are eligible to access the pension freedoms, which they would not face at their normal retirement date. The Financial Conduct Authority intends to make rules by April 2017 to cap or ban early exit charges in personal and workplace personal pension schemes. Parliament has already approved amendments to the Financial Services and Markets Act 2000, which broadly allows contracts to be overridden.

Together with the existing powers in relation to charges, Clause 40 will enable us to make regulations that introduce similar protection to members of occupational pension schemes. It will also be used to override contractual terms that conflict with the ban on member-borne commission arising under existing contracts in certain occupational pension schemes. By “commission contracts” we mean the contracts between trustees or managers and a person who provides administrative services to the scheme, which permits the person to impose the member-borne commission charge. Existing contracts are those that were entered into before 6 April 2016. This will complete the ban that already exists for commission arrangements entered into on or after 6 April 2016.

The consultations that we undertook on early exit charges and on member-borne commission showed us that these charges generally arise in contracts between trustees or managers of certain occupational pension schemes and those who provide administration services to the scheme. Our existing powers in Schedule 18 to the Pensions Act 2014 enable us to make regulations that override any provision of a relevant scheme where it conflicts with a provision in those regulations. For example, we have used that power in relation to the appointment of service providers in the scheme administration regulations. The reason why we are taking this power is that this does not extend to the contracts under which the charges arise. Clause 40 therefore extends the existing power in Schedule 18 to allow the overriding of a term of a relevant contract that conflicts with a provision of the regulations. The relevant contract is defined as those between a trustee or a manager of a pension scheme and someone providing services to the scheme. The regulations that we intend to make will apply to charges imposed from the date when the regulations come into force, even where they are charged under existing contracts. We expect them to come into force in October 2017.

As noble Lords may be aware, the pensions market is continually evolving and modernising, and this extends to charging practices. It may be necessary to alter the charges requirements to reflect any changes in the pensions market that may disadvantage members. We intend to consult on the draft regulations early next year. In addition, any potential further regulations made under the power in Clause 40 will be subject to public consultation. The requirement to do this is set out in paragraph 8 of Schedule 18 to the Pensions Act 2014.

Such regulations would also be subject to parliamentary scrutiny through the negative resolution procedure. I note that this House’s Delegated Powers and Regulatory Reform Committee was content with this approach. This allows legislation to be amended reasonably quickly to provide the member protection that may be needed. Together with the consultation, we believe there is effective scrutiny and scope for challenge over the Government’s intended use of these powers.

I would be disappointed if any trustees felt that they had to resign over this. I regard these measures as benefiting scheme members, for whom trustees are acting to defend their interests. In response to the charge that we are interfering with contracts signed in good faith, we consulted on this. We made it clear that it is generally undesirable to interfere with existing contractual rights; it can be justified only in circumstances such as this, where it is necessary to achieve important public policy goals—we have given a commitment to do this—and where the action is proportionate in the public interest. We expect trustees and service providers to work together when renegotiating for amending contracts to reflect implementation of the charge cap, and our consultation and engagement with the pensions industry and other stakeholders on capping or banning early exit charges and spanning existing member-borne commission showed that, by and large, the Government’s intentions were widely welcomed. We continue to engage with industry and stakeholders on those two areas.

I hope that I have convinced the House that the clause should stand part of the Bill.

[Baroness Bakewell of Hardington Mandeville]

My Lords, I thank all noble Lords who have taken part in this short debate, especially my noble friend Lord Kirkwood of Kirkhope. I am reassured by the Minister saying that it is undesirable generally to interfere with contractual rights, completely concur that we must have member protection and welcome the public consultation that will take place in the near future. I am also reassured by much else that the Minister said and am content for the clause to stand part of the Bill.

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[Lord Young of Cookham]

My Lords, as we reach the last amendment in Committee, I point out that the Bill has been in the hands of two distinguished psychoanalysts—Freud and his disciple “Jung”. Between us, we have tried to look at the disorders in the Bill and prescribe appropriate remedies.

I thank the noble Baroness for raising this important issue. I understand the strong feelings that she expressed when she moved her amendment. In 2015, the Government introduced pension flexibilities, which gave people the freedom to choose how they use their pension savings. Over 300,000 people have chosen to flexibly access over £6 billion since they were introduced, and the Government are committed to keeping these freedoms in place.

In March 2015, the coalition Government announced proposals to remove the current restrictions on assigning existing annuities and to create the conditions for a secondary market to develop. The proposed reforms were in two main areas—removing the unauthorised payment tax that deters people from assigning their annuity, and working with the Financial Conduct Authority to establish a comprehensive consumer protection package. The Government engaged extensively with industry and consumer groups on how they could establish the conditions for an effective market to develop. It would not have been right to introduce measures before understanding the impact that they might have on consumers and ensuring that the necessary conditions for a successful market were in place. In the course of this engagement, it became increasingly clear that creating the conditions to allow a vibrant and competitive market to emerge, with multiple buyers and sellers of annuities, could not be balanced with sufficient consumer protection. I am grateful to the noble Lord, Lord McKenzie, for setting out so clearly the problems that would have ensued had we proceeded.

On 19 October, Simon Kirby, Economic Secretary to the Treasury, made a Statement in the other place about the Government’s decision not to take this policy forward, which I repeated for your Lordships on the same day. Our investigations showed that many annuity providers were willing to allow consumers to assign their annuities. Of course, the market for annuities is itself undergoing change following the introduction of the pension freedoms. What became apparent is that, at this time, there would be insufficient purchasers to create a competitive market. Without a competitive market, consumers were likely to get poor value for their annuities and incur high costs for selling.

The Government are committed to the principle of giving people the freedom to make decisions about what to do with their money, which is why we have explored in detail how we could allow this market to emerge and protect consumers at the same time. But what has become clear is that the steps the Government would need to take to create demand in the market would undermine protections and increase the risk for consumers. The noble Lord, Lord McKenzie, cited Steve Webb, the Pensions Minister at the time, who said in the context of this decision:

“There did need to be a lot of potential buyers for this market to work”,

and that while the decision is,

“disappointing it is understandable”.

Rather than being to the benefit of British pensioners, this market would instead be to their detriment. It would clearly not be in consumers’ interests to continue with this policy. Only this afternoon, we have had a number of debates about the importance of protecting consumers, and this would be a step in the opposite direction.

I accept that some people will be disappointed, as the noble Baroness explained, although our analysis indicated that only 5% of annuitants would be interested in taking this option forward. While we accept the disappointment, I hope that noble Lords will agree that it would not be right at this time to allow a market to develop when it is likely to lead to poor consumer outcomes. With this in mind, I ask the noble Baroness to withdraw her amendment.

[Baroness Bakewell of Hardington Mandeville]

My Lords, I thank the Minister for his response, which I obviously find extremely disappointing. This is a very serious issue. I understand that there were difficulties in producing a competitive market and that the Government support freedom of choice. However, pensioners will not have freedom of choice while they cannot access the secondary annuity market. I thank the noble Lord, Lord McKenzie, and the Minister for mentioning my colleague Steve Webb. His view is that the policy was abandoned because the Government did not put enough weight behind moving it forward. Had they done so, there might have been a different outcome.

At this time, I beg leave to withdraw the amendment but reserve the right to return to it on Report.

Pension Schemes Bill [HL]

Debate between Baroness Bakewell of Hardington Mandeville and Lord Young of Cookham

Monday 21st November 2016 Lords Chamber

[Lord Young of Cookham]

I take the noble Lord’s point. Under the authorisation criteria, the Pensions Regulator has to assess,

“whether each of the following is a fit and proper person”,

and one of them is a trustee. However, I take on board what the noble Lord says, which echoes what he said in an earlier debate—namely, that we should not lose sight of the responsibilities of trustees when we focus on the Pensions Regulator and everybody else. I should like to reflect on the point he has made and, indeed, the other point made about potential conflicts of interest and master trusts.

[Baroness Bakewell of Hardington Mandeville]

I thank the Minister for his very full response on all the amendments in this group. I agree that long-term financial sustainability is very important. I noted that when he talked about the responsibilities of trustees, he said that they “must” do certain things, not “may”, yet the Bill says “may” and not “must”. I will look in detail at what the Minister has said and I will be looking for clarity in the Bill. However, given the hour, I beg leave to withdraw the amendment.

Housing and Planning Bill

Debate between Baroness Bakewell of Hardington Mandeville and Lord Young of Cookham

Thursday 3rd March 2016 Lords Chamber

[Lord Young of Cookham]

I am reading from the briefing from Rentplus:

“The affordable rent to buy tenure addresses this, enabling tenants to save more through paying lower rents and allowing them to purchase their home after a set number of years”.

In other words, the money is put on one side to enable them to buy the product at a later date. That is from Rentplus, and I am very happy to let the noble Baroness have the briefing. It was debated in another place and, in response to a question, the Minister replied:

“Higher income tenants in a Rent to Buy scheme will not face increased rent under proposals for pay to stay. This is because the rent they pay is an intermediate rent”—

this may answer the noble Baroness’s question—

“which is excluded from social rent policy”.

The purpose of the amendment is to see whether this product—and there may be other products, such as shared ownership—will qualify as starter homes under the definition. Or, if it does not qualify under the current definition, whether the definition could be looked at so that products that promote home ownership will be included in the starter homes definition. We had a bit of this debate on Clause 1. I hope it will not be so narrowly drawn that a number of worthwhile products, such a Rent to Buy, will be able to score as starter homes. Again, just looking at the brief from Rentplus:

“Affordable rent to buy is a new ‘hybrid’ housing tenure, sitting between affordable rent and intermediate housing. The tenure enables working households to save for a deposit whilst renting at an affordable rate (80% of market rent …) allowing tenants to purchase their home after a set number of years”.

I hope that explains to the noble Baroness what the product is. I am surprised that, given her interest in housing, she may not have come across this particular product.

I very much hope that, in her response, my noble friend can give some comfort to those aspiring home owners who cannot access a deposit which is necessary for starter homes but who are seeking to enter home ownership through a different route.

[Baroness Bakewell of Hardington Mandeville (LD)]

My Lords, I will speak to Amendment 46. I support all the amendments in this group and the comments that were made by the noble Lords, Lord Kerslake and Lord Best. I support the Government’s aim to provide more homes for those who cannot currently afford them, but fear that the time-limited discount of 20% will be seen as unfair by those not able to access it, and will be unlikely to increase the housing supply in the future.

I do not support the discount remaining in place for the limited period of five years. This is a very sizeable discount, as other noble Lords have explained, and it should be enjoyed by others looking to gain access to the housing market in the future. This is a discount which should be available in perpetuity so that the same home can be within the reach of others, despite the inevitable rise that inflation will cause to the price of the property over its lifetime. Have the Government thought about what will happen if a purchaser fails? Who will get the discount if that initial purchaser defaults? Perhaps there is a bit of a perverse incentive for a lender to repossess after year 4.

Why should the first purchaser receive the discount, live in the dwelling for five years and then sell it, keep the discount and the uplift in the value of the house due to inflation and not pass that discount on to the next person? This discount is to be funded from local taxpayers, via the sale of high-value council homes. I feel certain that those taxpayers would wish their hard-earned money to be used wisely and to be recycled wherever possible.

Housing and Planning Bill

Debate between Baroness Bakewell of Hardington Mandeville and Lord Young of Cookham

Tuesday 1st March 2016 Lords Chamber

[Lord Young of Cookham (Con)]

My Lords, I shall seek to redress the balance in this debate by briefly making a contribution in support of the thrust of government policy in Chapter 1. I do not think the Bill is perfect, but I do think what the Government are seeking to do in this chapter is right.

Basically, what we are trying to do is move the dial of housing policy away from renting towards home ownership. We are not moving the dial nearly as far as some noble Lords have suggested, in that there remains a substantial commitment to investment in social housing for rent. I know the Government remain deeply committed to something the noble Lord, Lord Best, mentioned earlier—getting long-term institutional funds into the private rented sector.

I do think it is right to move the dial, which is what we do in Chapter 1. I think there are four reasons for this. First, it is what we said in the manifesto we would do. Secondly, it is what people want. Thirdly, it enables the Government to get more housing for a given amount of public investment. Fourthly, it has the potential to help, not hinder, those who are on the social housing list.

In the manifesto, we could not have been clearer about what we wanted to do. There is a whole chapter entitled “Helping you to buy a home of your own”, with a commitment to,

“build more homes that people can afford, including 200,000 new starter homes … double the number of first-time buyers compared to the last five years – helping one million more people to own their own home”.

In delivering that commitment, it is the judgment of the Government that they need primary legislation in order to deliver what they promised. I have heard nothing that contradicts that belief.

Secondly, and perhaps related to the first, it is actually what people want. We heard from my noble friend the Minister that, I think, 86% would prefer to be home owners. The majority of those who are privately renting would like to be home owners. All parties in this House have accepted that it is a legitimate pursuit of public policy to promote home ownership. We all accept the right to buy for council house tenants. There is promotion through the inheritance tax system to promote home ownership. This is another step in the direction, which has been sanctioned by all parties for some time, of promoting home ownership.

Thirdly, it has the potential to provide more houses for a given amount of public money at a time of public expenditure constraint. In the 1980s, we switched resources from the local authorities to the housing associations, because if we let the local authorities borrow it scored against the PSBR, but if we let the housing associations borrow it did not. As a result, there was a substantial increase in output. The nudge of the dial enables more houses to be built for a given amount of public pounds. I was looking at my copy of Inside Housing, which has a paragraph headed “HCA confirms tenure change”, which says:

“Chichester Council was originally expecting 30% affordable housing in its Section 106 agreement for the planned 160-home Lower Graylingwell site in Chichester. This has now been changed to 50% Starter Homes, which are considered affordable by government, meaning 80 will be built in place of 48 affordable homes”.

I think we all agree that we need to increase the output of housing. One of the consequences of this policy is that that can happen.

Finally, it has the potential to help, not hinder, those on the waiting list. I respectfully disagree with what the noble Lord, Lord Shipley, said, which was that houses for sale and social renting meet two different markets. I do not think that that is the case at all. I think that there is a group in the middle who would like to be home owners but cannot and who are therefore in the social housing queue. This can benefit those for whom there is no alternative but social housing because it removes from the queue those who could afford home ownership with a little bit of help from the Government but who otherwise will remain in the queue, possibly ahead of people in greater need.

My only comment is that I would like to see the starter homes initiative initially targeted on existing social tenants and housing association tenants who, for whatever reason, do not have the right to buy—they might not have been there for 10 years—so that the initiative would enable a social tenancy by moving somebody out. Alternatively, the starter homes initiative could be targeted at those on the waiting list so that they are removed from it, enabling others to move ahead.

Although, as I said, the Bill is not perfect—I may have some doubts to express at later stages—it is in the right direction. It is delivering what we said and it deserves support.

[Baroness Bakewell of Hardington Mandeville (LD)]

My Lords, I will speak specifically to Amendments 47 and 48C. I will not be anything like as eloquent as the noble Lord, Lord Best, but I will do my best.

I believe that the Government’s concentration on starter homes to the exclusion of other tenures is extremely damaging to the housing market and to the aspirations of those looking for a home of any sort. There are those, as we have heard, who will never be able to afford or be eligible for the Government’s starter home programme. There are those who struggle to pay market rents, never mind repayments on a mortgage, and those who will be excluded from renting from a private landlord due to the rents being levied. These people are not to be cast aside as though they are of no importance. Each and every one of them deserves the dignity and security of a decent home in which to live and bring up their children.

Crisis has produced a brief that indicates that starter homes, as we have heard, will primarily help couples without children and on average or above-average salaries. Starter homes will be inaccessible to families on or below the national living wage in all but 2% of council areas. There are only six local authority areas where single people on an average wage or less will be able to afford a starter home. By requiring councils to prioritise starter homes for higher earners, the Bill reduces the scope of local authorities to meet the full range of housing requirements that councils have identified through their planning processes. Thus, the housing needs of low-income groups will go unmet and homelessness is likely to increase.

It is essential that local authorities can retain their flexibility to provide a full range of housing tenures and requirements, including social and affordable housing, to meet the needs of their residents. Starter homes do not do this. The Government should accept this and allow councils to make provision to meet the gap in the market that the starter home policy will create. This is essential to a buoyant housing market in the country and to meet the needs of those at the lower end of the income spectrum.

On Amendment 48C, local authorities do not carry out their planning processes and housing functions in the dark. They do not produce a map and, with a blindfold on, attempt to pin the tail on the donkey, as we did when we were children at birthday parties. No, they have detailed information which they have gathered from officers, residents, parish councils, surveys, census figures, voluntary organisations, developers, Age UK, Citizens Advice and so on. All this assists them to build up a picture of what housing is needed and where. They are able to calculate what is viable in which location and what is not.

It is all very well for the Secretary of State to require from on high that a starter home requirement must be met, but if there is no need for starter homes in a particular area but homes of a very different nature, this would seem to be a false requirement. Surely it is for local authorities using the information they have collected through their local planning processes to determine what is needed to prevent homelessness and provide for their residents in any given area. That is what their councillors have been elected to take responsibility for and which they have a burning desire to fulfil. Local authorities must be allowed to do just what it says on the tin—decide locally what is needed for their local communities.